75% Pre-Deposit Under MSMED Act Mandatory For Challenging Arbitral Award: Telangana High Court

The Telangana High Court on 15 April 2026 held that a buyer cannot circumvent the mandatory 75% pre-deposit requirement under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) to challenge an arbitral award.

A Division Bench of Justices Moushumi Bhattacharya and Gadi Praveen Kumar dismissed a Civil Revision Petition filed by Kendriya Bhandar, which sought exemption from depositing 75% of the awarded amount while challenging an award passed by the Micro and Small Enterprises Facilitation Council. It held:

“Section 19 makes it clear that the deposit requirement of 75% must be paid by all other entities, except the Supplier, for any application for setting aside any Award by the Facilitation Council. Section 19 further contains an express bar on the Court from entertaining any application challenging the Award/Decree passed by the Council unless the applicant deposits 75% of the awarded amount/Decree.”

The dispute arose from an arbitral award passed by the Facilitation Council directing the petitioner to pay approximately Rs. 98.78 crore to the respondent for supply of agricultural machinery pursuant to supply orders issued from August 2019 onwards. Although the respondent raised and the petitioner acknowledged invoices, the petitioner did not make payments, which led to proceedings before the Council.

The Commercial Court dismissed the application and held that Section 19 bars the Court from entertaining a challenge to the award unless the petitioner deposits 75% of the awarded amount. Earlier, the Gujarat High Court and the Supreme Court also dismissed the petitioner's challenges to the award.

Despite directions from the High Court to comply with Section 19, the petitioner continued to seek exemption, which led to the present revision petition. It argued that it qualified as a “supplier” under Section 2(n) and, being an MSME, was entitled to exemption from the pre-deposit requirement.

The Bench rejected this contention after examining the record. It noted that the documents consistently described the petitioner as the “buyer” and the respondent as the “supplier”, and held that the petitioner's MSME registration, obtained after completion of the supplies, could not operate retrospectively. It observed:

“Hence, contrary to the stand taken by the petitioner, the documents filed before the Commercial Court, which also form part of the record before this Court, unequivocally and consistently describe the petitioner as the 'Buyer'. The respondent No.1, on the other hand, is uniformly described as the 'Supplier'.”

The Court rejected the “back-to-back contract” argument and held that no privity of contract existed between the respondent and the alleged third party. It held that the petitioner could not shift its statutory obligation. The judges further held that applications filed without complying with Section 19 are “still-born” and incapable of being entertained.

Accordingly, the High Court found no infirmity in the Commercial Court's order, dismissed the revision petition, and upheld the mandatory pre-deposit requirement.

For Petitioner: Senior Advocate Avinash Desai and Advocate M Pranav

For Respondent: Senior Advocate A Venkatesh and Advocate Mohammed Omer Farooq